Bank Everbright defaulted on an interbank loan 10 days ago amid wild spikes in short-term "Shibor" borrowing rates, a sign that liquidity has suddenly dried up. "Typically stress starts in the periphery and moves to the core, and that is what we are already seeing with defaults in trust products," she said.

Fitch warned that wealth products worth $2 trillion of lending are in reality a "hidden second balance sheet" for banks, allowing them to circumvent loan curbs and dodge efforts by regulators to halt the excesses.

In June, China suffered its worst liquidity crisis in over a decade. Some sections of the U.K. and U.S. media exploded with wild comparisons to the US financial crisis in 2008. Such comparisons were nonsense, however, based on an elementary economic mistake. The U.S. did not suffer a liquidity crisis in 2008. It faced an insolvency crisis...